Question

1. ABC Company decides to use bonds as a method of debt financing. They issue 4.8% bonds on October 1, 2021 with a face amount of $750,000 and a maturity date of September 30, 2024. The bonds pay interest semiannually March 31 and September 30. The market rate of interest is 4%

Prepare an amortization table using the effective interest method related to the above. I would suggest inserting a table or Excel object into a Word document to prepare this. In addition, what should ABC record related to these bonds at its fiscal year-end of December 31, 2022?

Answer 1

Date	Cash Interest	Interest Expense	Amortization	Book Value of Bond
Oct, 01, 2021				$766,804
Mar,31, 2022	$18,000	$15,336	-$2,664	$764,140
=750000*4.8%/2	=766804*4%/2	($15,336 - $18,000)	($766,804 - $2,264)
Sep,30, 2022	$18,000	$15,283	-$2,717	$761,423
=750000*4.8%/2	=764140*4%/2	($15,283 - $18,000)	($761,423 - $2,717)
Mar,31, 2023	$18,000	$15,228	-$2,772	$758,652
	=750000*4.8%/2	=761423*4%/2	($15,228 - $18,000)	($758,652 - $2,772)
Sep,30, 2023	$18,000	$15,173	-$2,827	$755,825
=750000*4.8%/2	=758652*4%/2	($15,173 - $18,000)	($755,825 - $2,827)
Mar,31, 2024	$18,000	$15,116	-$2,884	$752,941
=750000*4.8%/2	=755825*4%/2	($15,116 - $18,000)	($752,941 - $2,884)
Sep,30, 2024	$18,000	$15,059	-$2,941	$750,000
=750000*4.8%/2	=752941*4%/2	($15,059 - $18,000)	($750,000 - $2,941)
	Interest Expense	$7,614
	Premium On Bonds	$1,386
	To Interest Payable		$9,000